Atea Q2 2012 financial results
Highlights Q2 2012
- Revenue of MNOK 5,339.7, up 7.9% y-o-y
- EBITDA of MNOK 153.8, down 16.9% y-o-y
- EBITDA margin of 2.9%, down from 3.7% y-o-y
- Acquisition of NG Infra Oü in Estonia and IT Partner in Norway
Market update
The financial turmoil in Europe has continued to impact the Nordic IT infrastructure market in Q2 2012. As a consequence of the tougher market conditions, prices are under pressure, particularly in the hardware segment. In order to continue to gain market share in the hardware market, Atea has responded to the price pressure by winning some deals with a lower gross margin. Increased revenue in hardware is important for increased services revenue going forward.
IDC's latest forecast for Atea's addressable market (the Blue Box) shows a growth of 2.8% in the Nordics in 2012. The forecast shows hardware growth of 3.4%, software growth of 3.3% and consulting and services growth of 1.8%.
In comparison with IDC's forecasted market growth in 2012 of 2.8%, Atea achieved actual growth in constant currency of 8.7% and organic growth of 7.2% in Q2 2012 in the Nordics. This demonstrates that Atea continues to gain market share.
Financial review Q2 and first half of 2012
Group
Group revenue in Q2 2012 was up 7.9% from MNOK 4,947.8 in Q2 2011 to MNOK 5,339.7 in Q2 2012. Hardware revenue was up 4.5%, consulting and services revenue was up 7.6% and software revenue was up 16.1%. The organic growth was 7.5% in constant currency, Atea thus continues to gain market share.
EBITDA in Q2 2012 ended at MNOK 153.8, down 16.9% y-o- y, representing a margin of 2.9%, down from 3.7% in Q2 2011. The main reduction in EBITDA versus last year is in the Swedish and Finnish markets, mainly as a consequence of lower hardware margins due to price pressure. Given the tougher market conditions Atea has chosen to win hardware deals and then to get the opportunity to offer services as well. The total gross margin was 23.7%, down from 24.9% in Q2 2011, while total operating costs were organically up 1.5% year over year.
Total revenue in H1 was MNOK 10,158.9, which is up 5.9% compared with the same period last year. The organic growth was 5.6% in constant currency. EBITDA ended at MNOK 316.4, down from MNOK 346.2 last year, representing an EBITDA margin of 3.1% versus 3.6% last year.
Norway
Revenue in Q2 2012 was MNOK 1,524.5 which was up by 22.2% compared with Q2 2011. Product revenue was up 28.5%, while consulting and services revenue was up 6.1%. Organic revenue growth in Q2 was 17.3%. Revenue from public sector was particularly strong in Q2 2012. IDC predicts growth of 3.2% in Norway in 2012, split between 3.5% for hardware, 3.7% for software and 2.5% for services, Atea thus continues to gain market share in Norway.
EBITDA in Q2 2012 ended at MNOK 57.5, up 10.2% compared with Q2 2011 and reflects the increased revenue. Product margin ended at 13.7%, which was down 0.4% compared with Q2 2011 due to a higher software volume with lower margins. Organically, total operational costs increased by 5.7%. The average organic increase in workforce in Q2 2012 compared with Q2 2011 was 4.2%. The EBITDA margin in Q2 2012 ended at 3.8% versus 4.2% last year. Order backlog is strong going into H2.
On 1 June, Atea AS finalized agreements to acquire IT Partner Finnmark AS (located in Alta) and IT Partner Hammerfest AS, who are leading providers of IT infrastructure in Finnmark. The two companies have 19 employees and are expected to generate total revenue of MNOK 50 and an EBITDA of MNOK 3 in 2012. The acquisition will strengthen the commitment towards existing customers in the northernmost region of Norway and secure a regional presence for the large investments in IT infrastructure related to the future oil development projects in the Barents Sea that are expected in the coming years. The enterprise value was MNOK 11.
Sweden
Revenue reached MNOK 1,721.5 in Q2 2012, which was up 3.6% (5.9% in constant currency) compared with last year. Product revenue was up 5.0%, mainly driven by 27.4% increase in software revenue, while consulting and services revenue was up 9.4% in constant currency. The current economic situation is having a negative influence on hardware volumes, mainly in the private enterprise segment. In addition, the tougher market conditions are causing increased price pressure, particularly in the hardware segment. Atea has responded aggressively to the market conditions and has been winning more deals and customers, and thus continuing to gain market share. This approach resulted in a negative effect on the total gross margin in Q2, but also resulted in a record high order backlog. The high order backlog and a strong pipeline indicate healthy top line growth in the second half of 2012. IDC predicts growth of 3.3% in Sweden in 2012, split between 4.3% for hardware, 3.3% for software and 2.1% for services.
EBITDA in Q2 2012 ended at MNOK 39.5 compared with MNOK 66.1 in Q2 2011. The reduction in EBITDA reflects lower gross margins on products. The total gross margin ended at 23.0% for Q2 2012, down from 25.3% in Q2 2011.
Cost reduction measures with an annual effect of MNOK 60 have been initiated during the quarter. The effects of these initiatives are expected to be MNOK 15 in the second half of 2012. Atea believes that the tougher market conditions will continue during the second half of the year, but due to the strong order backlog and cost reduction initiatives, it is estimated that EBITDA in the second half of 2012 will be in line with the second half of 2011. This means that the expected EBITDA in Sweden for the full year 2012 is MNOK 230, down from MNOK 261 in 2011.
During Q2, Atea Sweden was chosen as the supplier for several major products and related services to municipalities and public customers. The most important agreements are Uppsala and Umeå Universities (MNOK 49 per year over 2 years), Stockholm municipality (76 MNOK per year over 2 years), Gothenburg and surrounding municipalities (MNOK 172 per year over 2 years together with five other suppliers) and four framework agreements with Kammarkollegiet (one of MNOK 401 for one year together with four other suppliers, the second of MNOK 723 per year for 18 months with seven other suppliers and finally two agreements of MNOK 126.5 each per year for two years together with five other suppliers).
Denmark
Revenue in Q2 2012 ended at MNOK 1,520.7, up 1.6% (4.8% in constant currency) compared with Q2 2011. Product revenue was up 4.3%, while consulting and services revenue was up 7.0% in constant currency. Organically, revenue was up 3.8% in constant currency. IDC predicts growth of 1.6% in Denmark in 2012, split between 1.1% for hardware, 3.3% for software and 1.3% for services, Atea thus continues to gain market share in Denmark.
EBITDA in Q2 2012 ended at MNOK 44.5, down from MNOK 47.4 in Q2 2011. The product margin ended at 10.2% which is down 0.7% from Q2 2011, mainly due to increased price pressure and change in product mix. Organically, operational costs show an increase of 1.8% in constant currency compared to Q2 2011. The EBITDA margin ended at 2.9% compared with 3.2% in Q2 2011.
Finland
Revenue in Finland in Q2 2012 ended at MNOK 411.4, down 9.2% (6.0% in constant currency) compared with Q2 2011. Hardware revenue was down 18.5%, while software revenue was up 4.5% in constant currency. Total product revenue was therefore down 8.3%, while consulting and services revenue was up 18.6% in constant currency. The reduction in hardware business reflects a weaker market in the private enterprise sector. IDC predicts growth of 2.6% in Finland in 2012, split between 3.9% for hardware, 2.8% for software and 1.2% for services.
EBITDA in Q2 2012 ended at MNOK 4.7, compared with MNOK 13.2 in Q2 2011. The Q2 2012 decline in results versus last year mainly reflects a reduction in gross margin. As announced in the Q1 report, the full year EBITDA estimate has been reduced to MNOK 24, down from MNOK 48 in 2011, due to the overstatement of booked inventory.
The Baltics
Revenue in Q2 2012 was MNOK 168.6, which was up 64.1% (69.8% in constant currency) from Q2 2011. Organic growth in constant currency was 20.6%, mainly due to deliveries of EU funded projects.
EBITDA in Q2 2012 ended at MNOK 8.4, compared with MNOK 4.2 in Q2 2011. Organically, operational costs show a decrease of 1.2% in constant currency compared to Q2 2011, due to synergies from the acquisitions of Elsis IT UAB and UAB BMK. EBITDA margin ended at 5.0%, up from 4.0% in Q2 2011.
On 29 June 2012, Atea Baltic UAB finalized the agreement to acquire Net Group (NG Infra Oü) with 27 highly skilled employees based in Tallinn. With expected revenue of MNOK 66.3 and EBITDA of MNOK 3.2 in 2012, NG Infra Oü is one of the largest IT infrastructure companies in Estonia. The acquisition will add a service organization with important expertise and certifications to the Estonian operation. The acquisition is important for Atea in the Baltics, as Atea post the acquisition will be able to offer its customers the full range of IT infrastructure products and services in all Baltic countries. This is important since an increasing number of customers are placing Pan-Baltic orders. The estimated enterprise value is MNOK 14.5.
Outlook
IDC's forecast for 2012 for Atea's addressable market in the Nordics shows growth of 2.8%. Since the estimated growth in the first half of the year was 1.8%, the market growth is expected to be skewed towards the second half of the year.
IDC believes that growth in the hardware market in 2012 will be driven primarily by smart phones, tablets, and the delivery of school PCs in Sweden and Norway. Growth in the software market will be driven primarily by the deployment of large Windows 7 projects.
There is a strong trend in the services market towards outsourcing internal IT functions to external partners, and outsourcing client management in particular. This trend is fuelled by the increasingly complex client environment with more and new types of devices, more operating systems and applications, increased demand for accessibility and availability, and a greater focus on IT security as company data can no longer only be accessed from the office, but is brought everywhere the users bring their devices.
The risks and uncertainty in the outlook primarily relate to macroeconomic developments. A macro- economic downturn or increased macroeconomic uncertainty will result in hesitancy to commit to larger investment programmes. However, because of the relatively short lifespan of the IT infrastructure environment, postponements cannot be sustained for a longer period of time.
Investments in IT infrastructure are an integral part of the solution to the major challenge facing the Western World, which is increasing efficiency. IDC therefore believes that the IT infrastructure market in the Nordics will grow faster than GDP in general, at an average annual rate of 3.0% until 2015.
In the last few years, Atea has invested in high- growth areas such as Collaboration, Mobility, Virtualization, Software Asset Management, Windows 7, Consumerization and Green IT. Leveraging these investments in high growth areas, gives comfort that Atea can continue to grow at a faster pace than the market in general.
On 23 November 2011, Atea launched its "Together Towards the Top" strategy, which sets the scene for Atea's development towards 2015. The goal of the new strategy is to increase revenue to NOK 30 billion and EBITDA to NOK 1.8 billion by 2015. The plan has been well received by employees, key vendors and customers, and implementation of the initiatives has started according to plan. During 2012, Atea will continue to implement key initiatives from the strategy. These key initiatives include market- oriented actions aimed at increasing services revenue, and in particular contracted services revenue, a dedicated sales focus on mid-market and international customer groups, as well as internal actions to improve gross margins, improve processes and lower the cost base. On this basis, Atea is expected to win further market shares and improve its profitability in the coming years.
Equity and cash flow
Shareholders' equity as of 30 June 2012 was MNOK 3,501.4 corresponding to an equity ratio of 38.7%, down from 42.9% compared to 30 June 2011.
The Group generated an operational cash flow of MNOK 64.2 in Q2 2012, which was MNOK 173.7 below the corresponding quarter last year. The difference is explained by lower cash earnings and an increased build up in inventory related to school PC projects to be delivered in the third quarter of 2012. The Group has also experienced a negative effect on customer payments of approximately MNOK 100 compared to last year as a result of the last day in the quarter being a Saturday and customer payments thus being postponed to the beginning of July instead of being paid at the end of June. A strong cash flow for the full year 2012 is still expected, driven by increased earnings and decline in working capital in the second half of 2012.
The working capital ratio as of 30 June 2012 was 2.9%, which is up from 1.6% as of 30 June 2011.
During Q2 2012, capital expenditures were MNOK 56.9. These are maintenance investments related to hosting centres, Atea's internal "One Infrastructure" project, ERP development, equipment for employees and other office related investments.
Payments relating to acquisitions amounted to MNOK 42.9. The acquisition payments were related to the purchase of IT Partner AS in Norway, the IT infrastructure activities of Net Group in Estonia, and earn out payments in Finland related to the previous acquisitions of A Communications OY and PALnet OY.
On 26 April 2012 the annual general meeting adopted the board of directors' proposal concerning paying a dividend of NOK 5 per share. A dividend payment totalling MNOK 500.9 was thus made to shareholders on 9 May 2012.
At the end of Q2 2012, the Group's net financial position was MNOK -844.3, down from MNOK -299.7 at the end of Q1 2012. Cash reserves, including unutilised credit facilities, as of 30 June 2012 were MNOK 1,012.3.
For further information, please contact:
Claus Hougesen, CEO Atea ASA, Mobile +45 3078 1200
Rune Falstad, CFO Atea ASA, Mobile +47 906 14 482
Enclosures on www.newsweb.no
Please go to www.atea.com/reports for the quarterly report and presentation.
Video of the press conference is available at www.atea.com/webcast
About Atea
Atea is the leading Nordic and Baltic supplier of IT infrastructure with more than 6,000 employees. Atea is present in 81 cities in Norway, Sweden, Denmark, Finland, Lithuania, Latvia and Estonia. Atea delivers IT products from leading vendors and assist its customers with specialist competencies within IT infrastructure services. Atea had revenue of more than NOK 20 billion in 2011 and is listed on Oslo Stock Exchange.
www.atea.com
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